For years, associate veterinarians in the United States have been restricted by noncompete clauses that limit their pool of potential employers. Now it seems the tide may be turning.
On April, 23, 2024, the U.S. Federal Trade Commission voted to ban non-compete clauses for most U.S. employees. If the rule overcomes legal challenges, it could transform employment practices for thousands of U.S. veterinarians and practices.
In this video, Lance Roasa, JD, DVM, MS, an expert in veterinary employment contracts, explains what the rule means for the veterinary industry and offers guidance on what you should and shouldn't do when it comes to non-competes.
What Veterinarians Need to Know About Noncompetes
Lance Roasa, JD, DVM, MS
Details:
The Federal Trade Commission voted 3 to 2 to ban noncompete clauses in the United States.
Today, I’m going to break that down for you; what it means for veterinarians; what it means for veterinary practices; and what is coming in the future. This could be a massive shift for veterinarians and the employment law world, but this is an evolving story, so you’ll have to stay tuned with us as information comes out.
The FTC's Investigation of Noncompete Agreements
A little backstory: about three years ago, an executive order from President Biden was issued to the FTC, telling them to investigate non-compete agreements in the United States. Based on that mandate, the FTC published a proposed rule in January of 2023 and opened a notice and comment period.
The rule proposed a comprehensive ban on noncompete clauses for employees. During the last year, more than 26,000 Americans submitted comments, and some of which were submitted by veterinarians. On April 23, 2024, the five-member panel of the FTC voted 3-2 and simultaneously published a rule essentially banning noncompetes for employees and workers.
Understanding the Rule and Its Impact on Veterinarians and Practices
Here are some details about the rule and how it affects veterinarians and veterinary practices. Noncompetes are not banned immediately. The final rule is effective on September 4, 2024, according to information about the rule published in the Federal Register. However, legal challenges are being mounted against the rule (more information below).
What Type of Noncompete Agreements Would the Rule Ban?
Under the new rule, essentially all noncompete agreements are banned for workers, meaning employees and contractors. The only exceptions are noncompete agreements for senior executives and noncompetes that are entered into during the sale of a business.
Effectively, almost all employee noncompete agreements are going to be banned, which includes most veterinarians that are practicing as associates. Under the rule, if allowed to proceed, any existing noncompete clauses that were already signed will be unenforceable retroactively.
New noncompetes, written after the ban goes into effect, even for senior executives, will be unenforceable as well. Non-compete agreements for senior executives that were in effect before the ban will continue to be enforceable.
As an aside, senior executives are defined as those making $151,000 with policy-making authority. Now this definition could allow some veterinarians in medical director positions of private practices that have a currently written contract to still have enforceable noncompete agreements.
A little deeper dive, the rule specifically bans noncompetes for employees that make decisions at a subsidiary level. So local hospital medical directors within a large multi-location group practice would not qualify for the senior level executive exception and not be subject to their noncompete clause.
Back to the exception for sellers of practices: This would allow noncompete clauses in partnership agreements, buy-sell agreements, and asset purchase agreements to be enforceable. This follows current law in many states separating employees from former business owners and partners.
A Closer Look at How the Rule is Written and What It Means for Veterinarians
Let’s look a little deeper at the rule, starting with the definition of noncompete clauses according to the new rule.
“A term or condition of employment that prohibits a worker or penalizes a worker for or functions to prevent a worker from seeking or accepting work in the United States, with a different person, where such work would begin after the conclusion of the employment that includes the term.”
Let’s break this down without the legalese. This is saying any clause that creates post-employment restrictions that would penalize or prevent a worker from seeking or accepting work is banned. Basically, anything contractual that stops an employee from working in the future will be enforceable in court.
This is important because there's nothing about air-mile radius or geographic restrictions, which are hallmarks of the traditional non-compete. There is nothing about restricting the scope of the work, which is a big deal in veterinary medicine, with the broad range of practices, from companion animal to production animal to specialty practices, from day practice to emergency medicine. There’s nothing about a reasonable timeframe. This refers to any agreement that prohibits work in the future after the termination of current employment.
I point this out because if not written correctly, nonsolicitation agreements and nondisclosure agreements could be wrapped into this ban. Most veterinary contracts have noncompete agreements, nonsolicitation agreements, and nondisclosure agreements working together.
If you’re a practice owner or manager, you’ll want to review those agreements to see what protection is still in place. If you’re an associate, you’ll want to review your agreements to see if they prohibit you from taking a job after employment. Of course, the details are fuzzy. It would take multiple court cases to figure out exactly what this definition means and where the lines are.
Here are a few more details about the ban: If a practice’s workers are subject to noncompete agreements or the ban, the employer has 120 days to post notice that those noncompetes are no longer enforceable.
For practice owners, managers, and medical directors, this means that they should review their contracts and post that notice. There is a sample form on the FTC website that will help you write this notice.
On the associate side, if you currently have a noncompete in place, don’t burn your contract just yet. This does not mean that your noncompete clause is gone, effective immediately. The ban only takes place if the ban is allowed to proceed.
What Legal Challenges Could the Noncompete Rule Potentially Face?
Now let’s look at what is also happening concurrently. As of April 24, 2024, a lawsuit has already been filed by the U.S. Chamber of Commerce to block the FTC’s ban. Other organizations and businesses plan to file lawsuits as well.
These lawsuits are seeking a temporary restraining order against the FTC from enforcing the ban. The lawsuits claim that the FTC doesn’t have the authority and jurisdiction to rule on non-compete agreements.
Legally speaking, noncompete agreements have historically been governed by the state legislatures and state court systems, not the federal government through an agency. It’s debatable whether Congress actually granted power to the FTC to rule on this matter.
In my opinion, this ban will be held up in the courts for months or even potentially years. The court cases will be very interesting; they will be highly contested and likely will take years to resolve.
So before you go crumpling up your contract and looking for new practices, watch these court cases and watch the legal action unfold.
Conclusion
As a reminder, veterinarians and veterinary practices still have to watch their nonsolicitation and nondisclosure agreements, and it is unclear how this ban, if allowed to take effect, would impact those nonsolicitation agreements. To put it mildly, this puts the world of employment law on its ear.
Many lawyers, including myself, are trying to figure out how this affects our clients and how this will affect laws moving forward. Stay tuned to drip.vet and VIN, to bring you the latest news and analysis on how this legal maneuvering will play out.
Obviously, this is affecting tens of thousands of veterinarians and practices and is a massive story for our profession. If you are a veterinarian restricted by a non-compete, this is something you’re going to pay very close attention to.
More information:
Read the VIN News Commentary from Attorney Raphael Moore
Read the Final FTC Rule in the Federal Register
Read the VIN News article on what's next
Read the FTC announcement on the noncompete ban
Read the FTC fact sheet on the noncompete ban